McKesson redirects IT to become a services provider that delivers fuller business solutions

The next edition of the HP Discover Performance podcast series highlights how pharmaceuticals distributor and healthcare information technology services providerMcKesson
has transformed the very notion of IT. We will see how a shift in
culture and an emphasis on being a services provider has allowed
McKesson to not only deliver better results, but elevate the role of IT
into the strategic fabric of the company.

To learn more about how McKesson has recast the role of IT and remade its impact in a positive way, join Andy Smith, Vice President of Applications Hosting Services at McKesson. The discussion is moderated by Dana Gardner, Principal Analyst at Interarbor Solutions. [Disclosure: HP is a sponsor of BriefingsDirect podcasts.]

Here are some excerpts:

Gardner: Let me start with this notion of IT transformation.
What allowed you to
convince others that this was worth doing?

Smith:
What we did, and this started several years ago, was to focus on what
our competition was doing, not the competition to McKesson -- but the
competition to IT. In other words, who was the outsourcer or who were the other data-center
providers. From that, we were able to focus on our cost, quality, and
availability and come up with a set of metrics that covered it all, so
that we could know the areas we needed to transform and the areas where
we were okay.

Gardner: So, in a sense, you had to redefine yourself as a services provider, because that's who you saw as your competition?

Smith:
Exactly, and that's who our customers are talking to -- our
competition. When they came to us for a service, they had already talked
to third-party providers. And so we realized very quickly that our
competition was the outside world, so we had to model ourselves to be
more like them and less like an internal IT department.

Gardner:
That, of course, cuts across not only technology, but culture and the
whole idea of being accountable, and to whom. So let's start at that
higher level. How did you begin to define what the new culture for IT
should be?

Balanced scorecardSmith: We started out with a balanced scorecard. It really came down to whether the employees and the customers were satisfied. Did we do what we said – were we accountable -- and were the financials right?

So
when we started setting up that balance scorecard, that on its own
started to change the culture. Suddenly, customer satisfaction mattered,
and suddenly, system availability mattered, because the customer
cared, and we had to keep the employees trained, so that they were
satisfied.

Over time, that really changed the culture,
because we're looking at all four parts of the scorecard to make sure
we're moving forward.

When we were just an internal IT department, we spent more
time saying, "The customer gave us an order, we hit the checkbox and
finished that order, we're done." We were always asking, "Did we do it,
and did we do it on time?"

What
we really focused in on were the real drivers. A lot of the measures
are more trailing indicators. Even money tended to be a trailing
indicator.

That's not really what the
customer was looking for. The customer was looking for. "Did you
deliver what I needed, which may be different than what I asked for.
Did you deliver it at a good price? Did you deliver it at a good
quality." So it did switch from being measuring the ins and the outs of
an order taker, to whether we are delivering the solution at the right
price.

Gardner: As we've seen in a number of companies, when they’ve gone to more measurement using metrics, key performance indicators (KPIs), and working towards service-level agreements (SLAs),
sometimes that can become daunting. Sometimes, there is too much, and
you lose track of your goal. Is there a way that you work towards a
triage or a management approach for those metrics, those KPIs, that
allowed you to stay focused on these customer issues?

Smith:
What we really focused in on were the real drivers. A lot of the
measures are more trailing indicators. Even money tended to be a
trailing indicator.

So we went into what's really
driving our quality, what's really driving our cost. We got down to
four or five that we are the ones that mattered. "Is the system up and
running. Are changes causing outages. Are data protection services
reliable. Are our events being handled quickly and almost like a first
call resolution. Are they being resolved by the first person that gets
the event?"

The focus was prevent the outage and
shorten up the mean time to restore, because in the end, all of that
will drop the cost. It worked, but it was focusing on a handful, rather
than dozens.

Pulling down cost

It truly did bring down our cost within McKesson. Each year we pull down our cost several
million dollars. So every year my budget gets smaller, but every year
my quality gets higher, my employee satisfaction gets higher, and my
customer satisfaction gets higher.

It can really get
both. You don't have to sacrifice quality to reduce cost. The trick was
saying that I no longer needed a person to do this commodity factory
work. I could use a machine to do that, which freed up the worker from
being a reactive commodity person to being a proactive value-add
person. It allowed the employee to be more valuable, because they
weren't doing the busy work anymore. So it really did work.

Gardner:
For those in our audience who might not be familiar with McKesson,
tell us a little bit more about the company. Specifically, tell us
about the scale of your IT organization to put those millions of
dollars into some perspective in the total equation?

Smith:
McKesson IT is roughly 1,000 employees. The company is roughly 45,000
employees. So percentage-wise, we're not that big. My personal budget
to run the IT infrastructure is about a $100 million a year.

So
pulling out a few million dollars a year may be only a few percent,
but it's still a pretty significant endeavor. We've managed to pull
that cost out, both through the typical things like maintenance
contracts and improved equipment, but also by not having to grow the full-time employee (FTE) base. I haven't had to let any FTEs go, but what we've discovered was that, as we did these things, I needed fewer employees.

To
get people to stop thinking about the technology and start thinking
about the business solution is a slow transition, because it's a real
mind-shift.

As employees resigned, I didn't have
to replace them. My staff base has been shrinking, but I haven't had
anybody lose a job. So that's been also very reassuring for the
employees, because they kept waiting for that big shoe to drop, waiting
for us to say, "We're going to outsource you," but we've never had to
do it.

Gardner: When you compete
against the outsourcers better, then you are going to retain those jobs
and keep that skill set going. There is a cliché that you're able to
take people from firefighting and put them into innovation. Is there a
truth to that in what you've done?

Smith: That
really is truth. It took time, and we’re not done, but to get people to
stop thinking about the technology and start thinking about the
business solution is a slow transition, because it's a real mind-shift.
In a lot of ways, these employees see the reactive work as the bread
and butter work that puts the paycheck on the table. That lets them be a
firefighter and a hero, and if you take that away, the motivators are
different.

It takes time to get people comfortable
with the fact that your brain is worth a lot more doing value-add work
than it was just doing the firefighting. We're still going through that
cultural shift. In some ways, it's easier for the older employees,
because if you go back a few decades, IT was that. It was programmer analyst, system analyst, and business analyst. For me, "analyst" disappeared from all my job titles.

In
the last couple of decades, for some reason, we erased analyst, and
now you're just a programmer or an operator. In my mind, we're bringing
the analyst back, which for the older employees, is easy, because they
used to do it. For the younger employees, we've got to teach them how
to be consultants. We've got to teach them how to be analyst. In some
cases, it's a totally different, scary place to go, because you
actually have to come out of the back office and talk to somebody, and
they're not used to that.

Cultural shift

Gardner: Maybe there are methodologies that work here that you could discuss, services-oriented architecture (SOA) comes to mind and also ITIL. Have you been using ITIL approaches and SOA to help make those transitions? Is there a technology track is a cultural shift?

Smith:
Yes, we went down the ITIL road, because we were manual before.
Everybody was doing it with tribal knowledge. The way I did it today
might be different than the way I'd do it tomorrow, because it's all
manual, and it's all in people's heads.

We did go into
ITIL version 3 and push it very hard to give that consistency, because
the consistency really mattered. Then, we could really measure the
quality. We could be ensured that no matter who did it or when it was
done, it was done the same way, and that reliability mattered a lot.

We
also got away from custom technology, and we got to where everything
is going to be a certain type of machine. It's going to look the same.
All the tools are going to be fully integrated and no longer be
best-of-breed point solutions. Driving that standardization made a big
difference. You don’t have to remember that machine on the left you
reboot it this way, and that machine on the right you reboot it a
different way. You don’t have to remember anymore, because they're all
the same.

We made the equipment and tools standard and
more of a commodity so that the people didn’t have to be that anymore.
The people could be thought leaders. All those things really did work
to drive out the cost and increase the quality, but it's a lot of
different pieces. You can't do it with just one golden arrow. You have
to hit it from every angle.

We had to increase the transparency to say we’re doing a good job or we’re doing a bad job.

We
had to change the technology, the people, and the processes. We had to
increase the transparency to say we’re doing a good job or we’re doing
a bad job. It was just, "Expose everything you’re doing."

That's
scary at first, but in the end, we found out we really are competing
with the competitors and we can continue to do it, and do it better. We
understand healthcare, we understand McKesson, and we’re an internal
group, so we don’t have a profit margin. All those things combined can
make us a better IT solution than a third party could be.

What really matters is the
business solution you’re trying to solve. We’re stepping even farther
back, saying that the service is order to cash, or the service is
payroll, or the service is whatever. We’re stepping back farther, so we
can look at the service from the standpoint of the customer. What does
the customer want? The customer doesn’t want Unix. The customer wants
order to cash. The customer doesn’t want Windows. The customer wants
payroll.

Thinking about cloud

Stepping
back has now allowed us to start thinking about that cloud. All the
equipment underneath is commoditized, and so I can now sit back and say
that the customer wants this business solution and ask who is the best
person to give me the components underneath?

Some of them, for security
reasons, we’re going to do on our internal cloud. Some of them,
because of no security issues, we’re going to have a broker with an
external provider, because they may be better, cheaper, or faster, and
they may have that ability to burst up and burst down, if we’re doing R&D kind of work.

So
it's brought us back to thinking like a business person. What does the
business need and who is the best provider? It might not be me, but
we’ll make that decision and broker it out. This year we're probably
going to pull off our internal cloud and our external cloud and really
have a hybrid solution, which we’ve been talking about for a couple of
years. I think it will really happen this year.